By Devayani Sathyan and Vuyani Ndaba
BENGALURU/JOHANNESBURG (Reuters) – Most emerging market currencies are expected to trade within tight ranges or give up some of their year-to-date gains in the next three months after the U.S. Federal Reserve cut expectations for aggressive curbed interest rate cuts, according to a Reuters report. poll.
After suffering significant losses last year and in the first half of 2024, emerging market currencies posted notable gains against the dollar in recent weeks after the Fed cut borrowing costs by 50 basis points.
However, the rally in emerging market currencies is nearing an end after Federal Reserve Chairman Jerome Powell indicated that the US central bank would likely maintain interest rate cuts of a quarter of a percentage point going forward.
Rising geopolitical tensions have also led investors to the safe haven of the dollar and away from risk-sensitive emerging markets.
The broader currency poll predicted the dollar would remain stable in the coming months.
According to the September 30 to October 3 survey of 59 currency strategists, most emerging market currencies were forecast to trade within a range or weaken slightly over the next three months.
“We don’t expect any further big gains in the EMFX spot against the dollar. We expect a relatively even mix of winners and losers against the dollar by the end of the year,” said Phoenix Kalen, global head of Emerging Markets Research. at Societe Generale (OTC:).
“We don’t think the Fed funds path will move much higher from here, so that limits the tailwind for the dollar. But at the same time, it’s unlikely to fall any further.”
The Thai baht and Malaysian ringgit were expected to lose 1.2% to 2.0% over the next three months. The economy was forecast to weaken by almost 5.0% by then.
Expectations that the yuan will lose all its year-to-date gains over the next three months coincide with the People’s Bank of China unveiling its most substantial stimulus measure since the pandemic, aiming to propel the economy towards its growth target to drive the government from 5% and stay away from deflation. .
A surge in growth in China, a major trading partner of many countries, would largely benefit emerging market currencies.
Average estimates showed the Indian rupee trading at 83.73 per dollar in three months, little changed from last month’s forecast.
The South African rand was expected to fall by almost 1% per dollar over the next three months. Over the past six months since the May elections, the country has risen by about 8%.
“For now, we are a bit cautious on EMFX next year because of the potential recovery of the dollar, but at the same time we are keeping an eye on what is happening in China and the stimulus measures there, and how that affects the global commodity market,” the CEO said . Mitul Kotecha, head of FX & EM macro strategy at Barclays.
“The big caveat is that there is a US election coming up and that could be something that could lead to some caution as we move into November.”
(Other stories from Reuters October currency poll)
